[Congressional Record (Bound Edition), Volume 156 (2010), Part 5]
[House]
[Pages 6301-6308]
[From the U.S. Government Publishing Office, www.gpo.gov]




                     THE AMERICAN ENTERPRISE SYSTEM

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 6, 2009, the gentleman from Iowa (Mr. King) is recognized for 
60 minutes as the designee of the minority leader.
  Mr. KING of Iowa. Madam Speaker, I appreciate your indulgence this 
evening and the opportunity to address you here on the floor of the 
House.
  Not having had the opportunity to listen to the dialogue of the 
previous people, I will take this up where the front of my mind and my 
conscience happens to be, and that is what is happening with and to 
America, what are our priorities, where are we going to go from here, 
presuming that we could actually reverse many of the things that have 
taken place over the last 1\1/2\ years or longer.
  Madam Speaker, I would ask your indulgence to just cast your mind 
back into the last 1\1/2\ years or so, this being April 2010. In fact, 
I would take us back into August and September of 2008, perhaps a 
little more than 18 months by now. And what we have seen happen is that 
we saw a concern about the potential economic collapse of the free 
world, the fear that global currency and the confidence that allows us 
to trade in that currency could collapse and that we would see the free 
market economy and the markets within the world, including the Dow 
Jones and a number of the other market indexs, the Nikkei market, 
European market, and that list goes on, those lose the confidence of 
the investors if that happened, if the investors pulled their money 
out, if, in fact, there was any money to be pulled out, we could have 
seen a downward spiral that could have been a crash of our economic 
system that could have potentially eclipsed that of the Stock Market 
Crash that precipitated the Great Depression in October 1929.
  We saw the Secretary of the Treasury, Henry Paulson come to this 
Capitol on September 19, 2008, and make a request, a very serious 
request, and some might characterize it as a demand, for 700 billion 
taxpayer dollars, 700 billion taxpayer dollars to inject into this 
economy in a fashion that he saw fit, in a fashion that wasn't 
necessarily laid out for us. We didn't understand particularly his 
presentation. We heard the words he said but it wasn't definitive. It 
wasn't clear. And as we found out after the $700 billion worth of TARP 
passed, even those words didn't hold so very accurately when we looked 
at the actual practice of how the $700 billion was spent.
  So, Madam Speaker, that was the start of this long saga of what 
America's free enterprise economy, what is left of it, might look like 
and how we might manage these finances.
  It's interesting to me that since that time, I have done some 
traveling around the world and I recall listening to Angela Merkel and 
the leaders in Germany the following February, if my memory serves me 
correctly, so it would be February of 2009, say to us, America, you're 
spending too much money. You should not dump the $700 billion in TARP 
in. It is a waste of money. It is irresponsible. You need to pull back. 
Their proposal in Germany, even though that is a social democracy, a 
nation that wants to have as much of it, apparently, within the hands 
of the government to manage as they can and a minimal amount within the 
free enterprise system, they have a different belief in it than we 
have.
  They had a $450 billion plan; ours was a $700 billion plan followed 
by a $787 billion plan, coupled with $1 or $2 trillion disbursed by the 
U.S. Treasury that wasn't within the province or the guidance of this 
Congress, and I think it's awfully hard to track what that might have 
meant.

                              {time}  2130

  Theirs was $450 billion. I believe the number was $80 billion in 
targeted expenditures and the rest were loan guarantees. So one might 
argue the German approach to this--the people that originated 
socialized medicine, by the way--was they would spend $80 billion in an 
economic stimulus plan. Now, granted, their economy is not as large as 
ours, but $80 billion versus $700 billion, and another $787 billion, 
Madam Speaker, and we have the Germans admonishing us because we're 
spending too much money in trying to stimulate the economy in this 
robust Keynesian approach. And then since that time we've heard the 
President of France lecture us on the dangers of appeasement.
  Oh, what a world we have today. How so much it has changed in the 
last 2 or 3 years, Madam Speaker. How so much the philosophy that has 
made America great has been pushed to the sidelines, hasn't emerged 
very much in the thought process, the decisionmaking component of this, 
at least, even though it remains in the hearts and minds of the 
American people.
  So, Madam Speaker, here we are today, $700 billion in TARP spending, 
gone, spent, blown. This, yes, was initiated under the Bush 
administration, as was the nationalization of several financial 
institutions and the beginnings of the nationalization of AIG. However, 
the balance of all these things that I'm about to talk about came about 
under the Obama administration. And everything that I'm talking about, 
from the $700 billion TARP funding all the way through to today, was 
supported by either then-Senator Barack Obama, candidate for the 
Presidency Barack Obama, or the President of the United States, Barack 
Obama. That policy is indistinguishable whether he supported it as a 
Senator, whether he supported it because he was a candidate for the 
President or because he supported it as the President-elect or the 
President of the United States.
  And George Bush gave some deference to Barack Obama on how he would 
approach this economy. One day I hope to have that conversation with 
President Bush. But, in any case, there's no component of this 
voracious appetite for overspending and pushing government into every 
corner of our private sector lives, there's no aspect of this that 
wasn't supported by the President of the United States, Barack Obama.
  The American people know that and they understand it, Madam Speaker. 
And so what we have seen, we have seen the support for the $700 billion 
in TARP. In fact, this Congress limited the first half of that to $350 
billion. And that went, essentially, without strings attached. And the 
balance of that, the other $350 billion, had to be approved. This was 
in October of 2008, so it had to be approved by a Congress to be 
elected later and by a President to be elected later. We know what 
happened. The second $350 billion was approved by the Congress elected 
in November of 2008 and approved by the President who was elected in 
2008, Barack Obama.
  So this entire lexicon of things that happened economically, good or 
bad, are not the fault of George Bush. They are not laid at the feet of 
the previous President. These are the responsibilities of this 
Congress, the House, the Senate, under the leadership of Speaker 
Pelosi, the leadership of Harry Reid down that aisle, and the 
leadership of Barack Obama, whom I have

[[Page 6302]]

sometimes described as a ruling troika, Madam Speaker. That would be, 
as I warned America about during that same period of time, if you elect 
Barack Obama as the President of the United States and re-renew the 
Speakership of Nancy Pelosi--in other words, reelect the Democrat 
majority here in the House--and you continue to expand the majority of 
the Democrats in the United States Senate, we will have created, and 
this is something that I believe is part of the Congressional Record, a 
ruling troika in America--that ruling troika being the President, 
Speaker Pelosi, Harry Reid, who could, by my words then, upheld to be 
true since then, go into a phone booth, the three of them--haven't done 
so literally, but figuratively they have--and decided what they would 
do to America.
  Their accountability isn't to the American people. It isn't to the 
will of the American people. Their accountability is only to the 
members of their own caucus as to whether they would not just reelect 
them as leaders but decline to un-elect them as the leaders of their 
caucus. That is the only restraint that is on them and then the 
restraint of pushing policies that they couldn't pull the votes to get 
past.
  It came very close here in the House a couple of times. And I have 
respect for political operators that have an ability to get those tough 
votes through and get them passed. In fact, if it's the right thing to 
do, it's a hard thing to run a good country--in fact, a great country--
if you can't get those tough votes accomplished. But I will suggest, 
Madam Speaker, that many of the things that have happened in this 
Congress, the 111th Congress and the 110th Congress that preceded it, 
are anathema to the American vision and anathema to the American Dream, 
that they run contrary to the principles that made America great.
  I can take us down this path. TARP is one of them. The Federal 
Government's business isn't to come in and decide which businesses are 
too big to be allowed to fail and then put a huge bill against the 
taxpayers, their children and their grandchildren; borrow the money 
from the Chinese and the Saudis; and then make decisions on which 
businesses should be allowed to succeed, with government help, and 
which businesses should be allowed to fail.
  This country has got to be run by free enterprise, by the free 
markets; and if businesses fail, they have to be allowed to fail. And 
investors need to be able to come in and pick up the pieces at the 
discount that is available when they go through chapter 11 or 7. Their 
assets are still there. They can be managed by other corporate entities 
or noncorporate entities, for that matter.
  It isn't that if a bank went under or if AIG the insurance company 
went under that all of a sudden all of the assets that they have are 
dispersed or sunk into the ocean somewhere. The hard assets are still 
there. The accounts are still there. They can still be managed by some 
entity that comes in and picks up the pieces. I have seen this happen a 
number of times far too close to make me comfortable within the banks 
that were closed back during those years in the farm crisis years of 
the eighties.
  It happened over and over again, hundreds and hundreds of banks went 
under. And when they went under, they were recapitalized. New board of 
directors. New investors came in and picked up those shares of stock. 
They looked at the loan portfolios, they looked at the deposits, and 
they made management decisions to put that bank back on a profitable 
track. Many of those banks, most of those banks, and I don't know that 
I could say all of those banks actually got turned back into profit. 
Yes, there were banks that were closed. There were those whose doors 
were shut and didn't open again. But many banks came under new 
ownership because they were sold back into the private sector. Even 
though the FDIC found themselves brokering assets of banks no longer 
solvent, they did not hold on to the assets of those banks and operate 
those banks as if they were players in the private sector.
  But what we have seen happen with this Obama White House is entirely 
different than what we saw during the farm crisis years of the 
eighties. First, this idea of too big to fail. Too big to fail, Madam 
Speaker. No one in America's britches should be too big to fail. Too 
big for their britches, but they can't fail.
  I'd point out a presentation that was made to us about 3 years ago at 
an 8 a.m. Wednesday morning meeting which I host, a breakfast which I 
host and have done so for 5\1/2\ years, the Conservative Opportunities 
Society. One of the very smart financial presenters there--since that 
is off the record in that meeting, I can address what he said, but not 
his name--we were talking about the subprime mortgage crisis. And he 
said, When you're in the business, the investment banking business, 
where he'd been for 30 years, what you do in this business is--and he 
paused for effect and said, Pretty much whatever everybody else does. 
That way, if they're making money, you're making money. But if things 
melt down and there is a bailout, then you will be bailed out with 
everybody else.
  Madam Speaker, it's not hard for me to imagine what that does to the 
investment minds of people that are operating investment banks if they 
know implicitly, not explicitly, that they can take a lot of risks and 
they are never really going to go under because the Federal Government 
will come in and bail them out. That was the implicit guarantee in 
banks that were too big to be allowed to fail. And it was followed 
through upon by this government, by this President, in this 
administration, in this time, and approved by him as a United States 
Senator and approved by him as a candidate for the Presidency.
  Too big too fail became too big to be allowed to fail. Too big to be 
allowed to fail. The Federal Government would come in, and if we didn't 
have the money to bail out these businesses, then we would tap into the 
United States Treasury, who would borrow it and borrow it from the 
Chinese and the Saudis and anybody else that could invest in U.S. bonds 
and pick up these businesses.
  So the Federal Government nationalized three large investment banks 
in the aftermath of this September 19 visit to the Capitol by Henry 
Paulsen, then the Secretary of the Treasury. Three large investment 
banks, ownership taken over. Ownership or control taken over by the 
Federal Government. AIG, the insurance company, $180 billion invested 
in an insurance company, was guaranteeing securities.
  And then we back this up to the late seventies when the Community 
Reinvestment Act was passed because there were lenders that were not 
willing to make bad loans in bad neighborhoods. They had drawn red 
lines and concluded the asset value was diminishing, not appreciating, 
and the return on that investment, let's say the collateral value was 
shrinking. Therefore, if they loaned against that collateral value, 
they would find themselves upside down in those mortgage loans. So they 
drew lines around the neighborhoods where the value of assets was going 
down.
  Now, some argued that it was a racist decision. I don't know that. I 
wasn't in those rooms and I don't know those people. For all I know, I 
never met the people that were making those decisions. If it was for 
the racist reason, it's kind of like racial profiling. If that is your 
only reason, then it's wrong. But if it's an indicator that makes you 
look at the totality of the record, okay, then it may not be wrong. But 
lenders were drawing a red line around these neighborhoods, and they 
refused to make those loans into those neighborhoods.
  And there was a political decision made in this Congress that they 
were going to force lenders to make loans into those neighborhoods that 
had red lines drawn around them. That was the Community Reinvestment 
Act. But the problem was that they couldn't get the banks to make 
enough loans into those neighborhoods because the collateral value was 
going down and the underwriting requirements for Fannie Mae and Freddie 
Mac prohibited them from picking up on the secondary market some of 
those bad loans.

[[Page 6303]]

  So in 1978 I believe was the year when the Community Reinvestment Act 
was passed. They expected that there would be a lot more loans made 
into these neighborhoods that were redlined. There were more lines made 
but not enough to satisfy the organizations out there in the inner 
city. The community organizers--we can ask the President about 
community organizers. What do they do? They advocate for taxpayer 
dollars and redistribute those taxpayer dollars into the neighborhoods. 
They don't contribute to the free enterprise economy. They just tap 
into the taxpayers, distribute those taxpayer dollars, and in exchange 
trade off for political power. That is what community organizers do.
  So these community organizers concluded that they weren't going to 
get enough loans into those neighborhoods so they came back to this 
Congress and lobbied this Congress in the nineties to make changes in 
the Community Reinvestment Act and, by the way, because of the 
Community Reinvestment Act, they also found out that Fannie Mae and 
Freddie Mac had strict enough underwriting requirements, that because 
of those capital requirements and the underwriting requirements, Fannie 
and Freddie, the secondary loan market, the GSEs in the United States, 
could not pick up those loans off of those lending institutions.
  And so they have refreshed the Community Reinvestment Act and made it 
a little more strict, but also into the bargain they lowered the 
underwriting requirements for Fannie Mae and Freddie Mac. Now we have 
created a scenario for real bad loans in bad neighborhoods, real net 
loss to the lenders. But the lenders weren't on the hook so much 
because as soon as they could make a loan into a neighborhood that was 
approved by organizations like ACORN, they could peddle that loan off 
into the secondary market and Fannie Mae and Freddie Mac would pick up 
the entire tab on that and the original lender would be off the hook.
  So there's plenty of incentive for the original lenders to be retail 
marketing bad loans in bad neighborhoods as long as they could package 
them up, sell them into the secondary market under Fannie Mae and 
Freddie Mac. Fannie Mae and Freddie Mac then got to this point where 
they could see that they need to divest themselves of some of those 
loans, and they sliced them and diced them, and turned around and spun 
them back into the tertiary market and beyond.
  So as this mortgage market was moving along, it was still moving 
slowly through the nineties. And we got towards the end of the 
nineties, and actually to the year 2000, when George Bush was elected, 
we had at the end of the nineties the bursting of the dot-com bubble. 
When the dot-com bubble was burst--and I suspect it was pierced by the 
class action lawsuits that were brought against Microsoft by the State 
attorneys generals, my State Attorney General Tom Miller included--in 
fact, one of the ringleaders in the lawsuit against Microsoft. I 
actually think that the dot-com bubble would have burst anyway. Because 
what it was, it was a speculator's bubble. Yes, there was value in our 
ability to store and transfer information more effectively than ever 
before. The speculators invested in that. They bet that would return on 
their investment and these technology companies would blossom and make 
huge profits and they would cash in on them.

                              {time}  2140

  But this bubble was created out of that speculation, and the thing 
that wasn't corrected for some time until the bursting or the piercing 
of the dot-com bubble was the inability for the market to consider that 
having that technological ability to store and transfer information 
more effectively than ever before didn't necessarily translate into 
profits for companies. You have to produce something more efficiently 
in order for the value of that company to be there.
  So, with the Internet, for example, whatever the Internet does to 
improve the productivity of all of our companies--and anybody that is 
engaged in business will know that it does improve your productivity as 
a company--you have the value of that productivity as to what it's 
worth, not what you speculate you can store or transfer for 
information.
  The only other things that you got to add to that dot-com bubble 
value was the increase in productivity and the value that you have for 
recreation. So if people surf the Internet, and they were willing to 
pay for that, that was a component of our economy.
  But the dot-com bubble burst. And as it collapsed, we were seeing the 
end of the Clinton administration. That was the recession that they 
talked about during that period of time. And as George Bush was 
elected, we saw Alan Greenspan make an evaluation--and I suspect this 
is accurate, and he would have a different opinion of it perhaps--but 
that we needed to make some adjustments in this economy in order to 
compensate for our declining economy because of the bursting of the 
dot-com bubble. Remember, the bubble burst, and it left a depression 
within our economy. And I don't use that in economic terms. I use that 
in, let's say, literal terms.
  So Alan Greenspan looked at that and decided that we need to recover 
this economy. How do we do this? Well, unnaturally low interest rates. 
We're going to promote more mortgage loans. We are going to create a 
housing market and a housing boom, and we are going to use that to fill 
the hole in the dot-com bubble. That's the scenario that was playing 
out.
  So unnaturally low interest rates with an encouragement for people to 
borrow money on terms that they hadn't seen in their adult lifetimes, 
you couple that with the Community Reinvestment Act, passed in the 
seventies, refreshed in the nineties, coupled with the lowering of the 
capital and the underwriter requirements of Fannie Mae and Freddie Mac 
and an aggressive lobbying part on the part of ACORN, who came to this 
Congress and lobbied to lower the underwriting standards for Fannie and 
Freddie and to push the Community Reinvestment Act, and ACORN finding 
themselves and putting themselves in a position in the communities 
whereby they got to approve or disapprove of the effort of the lending 
institutions to make bad loans in bad neighborhoods.
  Now we have cooked up the perfect economic witch's brew, Madam 
Speaker, that resulted in the toxic mortgages that nearly brought down 
the global economy. That's a component of the scenario which nearly 
brought down the global economy. And as these investment banks, lending 
institutions picked up the mortgage loans on the secondary market, 
Fannie and Freddie tranched them, sliced and diced them, packaged them, 
shuffled them, cut the deck, sorted them out and began to sell them on 
up the market.
  AIG, the insurance company, was looking at these bundles of mortgage-
backed securities, setting a premium risk rate on these bundles and 
charging that premium. And whenever they were packaged and bundled and 
marketed for a profit, the people that were doing that were taking 
their profit out and passing the risk on, and AIG was passing judgment 
on that risk with no check and no balance and no one looking over their 
shoulder, and no one knew the market. They just trusted that AIG would 
know the answer because, after all, they were the premiere insurance 
company. They had been growing by leaps and bounds. But their agents 
were skimming--I don't know if I would say ``skimming'' is a fair 
enough word. But their agents were taking a profit out for the 
marketing of the policies and the premiums, but there was no continued 
responsibility and liability.
  So I'll suggest that when people make investments and they pass those 
investments up the line and they can take profit out of them at every 
step along the way, it's kind of like the reverse of the value-added 
tax, isn't it, Madam Speaker, where every time you can bundle up some 
mortgage-backed securities, package them up, get AIG to set a premium 
on that and get a guaranteed return rate because AIG's premium is 
there, pass that on up the line, you take your margin out of that, it's 
kind of like selling the wheat and

[[Page 6304]]

paying the tax to the Federal Government and sending the invoice along 
with it while the guy at the mill grinds the wheat into flour. He takes 
the invoice from the value-added tax and uses that for his credit, and 
it goes on up the line. He pays his 10 percent tax and goes to the 
baker, and the baker then uses the two invoice credits of the 10 
percent on the wheat and the value added that is another 10 percent on 
the increased amount on the flour that's milled from the wheat that 
goes to the baker who pays the tax of what's left on the value added 
before it goes to become the bread.

                              {time}  2150

  The same was going on during the era of the Community Reinvestment 
Act and Fannie Mae and Freddie Mac and the tranche mortgage-backed 
securities and AIG guaranteeing, passing that thing all of the way up 
the line. It became, yes, there was foundational value underneath these 
mortgages. That is the market value of the real estate, but it also was 
a huge chain letter that was marketed all of the way up through. And 
when the investors in the world lost confidence that they no longer 
knew the value of these bundles of mortgage-backed securities, then 
that happened, then we were threatened with an economic meltdown, Madam 
Speaker.
  That is kind of how we got here. And now, as the economy spirals 
downward, or more or less the threat of the economy spiraling downward, 
we look to a President who is a Keynesian economist on steroids. He 
believes, and I have certainly heard it directly from his lips in very 
short range that Franklin Delano Roosevelt lost his nerve on spending 
and that he just didn't spend enough money. If he would have spent a 
lot of more money, it is the view of the President, whom I take at his 
word, that the Great Depression would have been over in the 1930s and 
we wouldn't have had to wait until World War II that brought about the 
most effective economic stimulus plan ever. That would also be the 
President's view.
  But I will submit when the stock market crashed in October of 1929 
and we saw my Iowa President do some things that FDR may well have 
approved of, and FDR went in with the New Deal, which, in my view, was 
a really bad deal, and in President Obama's view was a pretty good deal 
and could have been a better deal if he spent a lot more money, it 
didn't bring about a recovery from the Depression that started in 
October of 1929, but what it did when the Federal Government borrowed a 
lot of money, and they borrowed it from the American people in the form 
of bonds, they created a lot of make-work projects, had to pay the 
interest, had to pay the principal, we had all of this debt going on at 
the beginning of World War II. And then we had to take on a lot more 
debt. But at least during that period of time, had we not borrowed all 
of that money, not spent all of that money, then the United States 
economy would not have had to service all of the interest and service 
all of the debt.
  Interest and principal. Could it be that the people in this country 
have forgotten what interest and principal is and what it takes in cash 
flow to service the debt. And will they ever figure out what it is like 
to be on the other side of this?
  I recall a very good neighbor and a wise mentor friend of mine, 
Dennis Lindberg, who has since passed away, told me a story about when 
he was a young man and how he had the experience of paying interest at 
a very young age. He said to me, I decided early on that if I was going 
to have anything to do with interest, I was going to be the one 
collecting it.
  But this government looks like they will have a lot to do with 
interest, and they will forever be the ones paying the interest rather 
than collecting the interest.
  So this economy has been diminished by the burden that has been put 
upon it, just like it was diminished in the 1930s by the burden put 
upon it. The stock market crashed in October of 1929, and it didn't 
recover during the Great Depression years of the 1930s. It didn't 
recover during World War II. The stock market was still struggling to 
get back to where it was at the end of World War II, at the beginning 
of the Korean War, at the end of the Korean war. It wasn't FDR who 
solved the problem. FDR delayed the recovery by borrowing all of that 
money and spending all of that money in the New Deal during the Great 
Depression. The stock market didn't come back to where it was in 1929 
until Franklin Delano Roosevelt had been dead for 9 years; 1954 is when 
the Dow Jones Industrial Average recovered to the place where it was 
when it crashed in October of 1929. All of those years, 9 years after 
Franklin Delano Roosevelt passed away.
  And I want to give him a tip of the hat and a nod, and a significant 
measure of respect for the way he led this country in World War II. He 
was solid. He was an anchor, he was stalwart, and a commander in chief. 
He had a vision for full, all-out 100 percent war demanding total 
surrender from our enemies. I can take some issue with some of the 
decisions made along the way; but on balance, Roosevelt was a very good 
wartime President. I just don't think he was a very good depression-era 
President.
  And this President, I have no idea what kind of wartime President he 
would be. We are not in a depression. Some will say we are in the Great 
Recession. That is the vernacular that has been adopted most. But this 
Great Recession that we appear to be in has spent a lot more money than 
was spent during the Great Depression of the 1930s. The result, I 
believe, will be similar.
  If you take a business, we can think in terms of a small business, a 
small business that generates $100,000 a year in gross receipts, and 
perhaps has a $10,000 mortgage with a 10 percent loan on it. This is so 
I can do the math as I am talking. So your $100,000 in gross receipts 
needs to pay the proprietor, pay the utility bills, and all of the 
overhead, as well as the interest. So if you are grossing $100,000 with 
a $10,000 loan, then 10 percent of that loan would be $1,000. And if 
you are paying $1,000 in interest, and let's just say you are going to 
retire that debt on a 10 year loan, so you pay 10 percent of the 
principal each year.
  The first year it would be $1,000 in interest and another $1,000 in 
principal; $2,000 out of your $100,000 goes to pay the debt, to service 
the debt you have. And then you have to take your margins, your 
expenses out of the remaining $98,000 and have enough to feed the 
proprietor and keep the proprietor engaged in the business
  Let's just say that all of a sudden, we have this economic crisis and 
the business is having trouble. It gets flooded or burned out or 
whatever it might be, and along comes on the Small Business 
Administration or some other entity, and they say we can keep you in 
business, but you can't stay in business unless you borrow $100,000 and 
we will inject that $100,000 of capital into your business. Well, that 
is nice. You get to stay in business.
  Now you have $109,000 worth of debt to service, but I will just go 
with the $100,000 because I am speaking off the cuff and I can do the 
math as we fly. Now your interest burden is not $1,000 on the $10,000 
debt you had, it is $10,000 interest on the $100,000 debt you have, and 
the 10 percent you were paying on principal of the $10,000 debt, that 
$1,000, now becomes $10,000.
  So your business that was servicing with $2,000 a $10,000 debt, now 
has to have two $20,000s to serve the $10,000 worth of interest and the 
$10,000 worth of principal on your $100,000 debt.
  You have taken your ability, your gross receipts in the business are 
similar or the same. You can only service $2,000 on the old way of 
financing with the $1,000 of interest and $1,000 worth of principal, 
$2,000 out of your $100,000 gross, but when they give you this nice 
loan that you borrowed $100,000, now you have to figure out how to 
service $10,000 worth of interest and $10,000 worth of principal out of 
a $100,000 worth of gross receipts. Instead of it being 2 percent, now 
it is 20 percent.
  I hope this example, Madam Speaker, is explanatory to the President 
of the United States, to Larry Summers, to the people that are looking 
at this

[[Page 6305]]

economy and believing that John Maynard Keynes had some answers. He had 
answers all right, but they were the wrong ones, Madam Speaker.
  We need to reduce the debt. We need to reduce spending, and only when 
we do that can we have a free market economy that will work its way out 
of this and let us be able to pay the interest and pay down the debt so 
that this economy can finally get around to the side where it is not 
constantly burdened servicing interest and debt as opposed to the 
legitimate functions of government.
  We did had 2 or 3 years here where we had a balanced budget. There 
are some reasons for that. I will give Bill Clinton a little credit. 
And I will give the Republican Congress a lot of credit. They came in 
here revolutionaries and they decided that they were going to choke 
spending down, and they did that. I think also, though, the economy 
outgrew their predictions and so they were a bit surprised when they 
balanced the budget.
  I think Bill Clinton was a bit surprised when the budget came 
balanced. Those are the fortunate happenstances of history. We need to 
be more prudent than that even.
  We are going to have to go back. This debt commission that meets 
tomorrow, that starts out with Erskine Bowles and former Senator Alan 
Simpson as co-chairs, they are going to examine all of this debt and 
figure out how to look at the debt and the income to bring America into 
something that is more responsible. I don't think that they think that 
they are going to balance the budget or make a proposal that will 
balance the budget, I think they believe that they are going to look at 
the spending and the income and make some kind of a recommendation that 
would help compensate the calamity that we are in.
  But, Madam Speaker, I would submit that if you want a committee to 
produce a result, write up that result. Tell me the result you would 
like and present it to me, and I can appoint for you the committee that 
will produce the result that you want. That is how it has been done 
around this Hill since time immemorial, how it is done in the real 
world, how it is done in the city council meetings and the county 
supervisory meetings and within the outside committees of our State 
legislatures. And that is not a criticism of the people who sit on that 
debt commission.

                              {time}  2200

  They are good people by and large and by balance. But they do not 
represent, I don't believe, the creative ideas in the United States. 
First of all, I look through that list of people on the commission; I 
don't find a single person on that commission that supports a national 
sales tax. I don't find a single person that has advocated for the 
abolishment of the IRS and the Federal income tax. Not one. Smart 
people there, yes. Their decisions, though, and their positions, from 
what I have seen, are not economic positions exclusively. They are 
pragmatic economic decisions that are tempered by their judgment of 
political reality.
  So couldn't we at the very least, if we wanted to provide solutions 
for America, couldn't we set all of our politics aside, take away all 
of this pragmatism that is political pragmatism, not economic realism, 
throw that off to the side, park it over there in the parking lot, 
can't we clean out all of the political jargon that's there and sit 
down and first ask the question: What would be the smartest thing we 
could do economically in this country? And in the process of doing 
that, how do we fund this government, the necessary components of the 
Federal Government?
  Madam Speaker, those are the basic questions I have been asking about 
this country for 30 years. And I am making a recommendation to the debt 
commission. And I trust that they will overhear this discussion that 
you and I are having tonight, Madam Speaker. But it comes down to this: 
if we were going to devise a tax policy for the United States starting 
from scratch, that proverbial blank slate or a blank piece of paper, 
that tax policy, Madam Speaker, would not be the Internal Revenue tax 
or code. We would not generate the IRS. We would not look at this as a 
tax on income.
  Because here is what Ronald Reagan once said. Ronald Reagan once 
said, ``What you tax you get less of.'' He also said, ``What you 
subsidize you get more of.'' But I will stick with the tax side of 
this. What you tax you get less of. The tax is a punishment. We here in 
America tax, and that is in quotes ``punish'' all productivity in the 
United States.
  If you have earnings, savings or investment, if you punch the time 
clock and go to work, if you start a business and put your sweat equity 
matched up with what capital you might have, package that together and 
start a little factory or a service company, or start marketing an 
invention, whatever it is that you might do, the IRS will come along 
and identify that productivity and tax it, punish it, shrink it, take 
away your incentive to produce it.
  Production is what drives this economy, not spending. That's a 
Keynesian mistake. It's not and never has been an economy that is 
driven by government spending or the Federal Government borrowing and 
bonding and putting cash in the hands of people so they spend it into 
the economy to get this to recover. That is not the answer.
  Our answer is we need to produce. We need to increase the production 
in America, in competition with the rest of the world, and market more 
goods and services and drive our gross domestic product up. And when we 
do that, we will see prosperity, the prosperity that comes from our 
efficiencies, from our productivity producing goods and services that 
have value. And so when Ronald Reagan said, ``What you tax you get less 
of,'' he was recognizing that we punish productivity.
  The Internal Revenue Service and the income tax code are completely 
dedicated to taxing all productivity in America, punishing all 
productivity in America, setting aside everything that is good and 
productive about our economy and taxing it.
  So if you punch a time clock and you go forward and you earn wages, 
you are taxed on it. At least the payroll tax. The Social Security, 
Medicare, Medicaid tax, that is on there. You will pay your income tax 
when you reach a certain threshold. If you have earnings, savings or 
investment, if you are going to cash in your dividend check, your 
capital gains, your interest check, all of that's taxed by the IRS.
  If you go through life and you acquire an equity base, a net worth, 
and perhaps you pay the tax on all of your income as you go along, and 
maybe even your investments didn't appreciate in value and were never 
taxed in that fashion--if they were you would have paid it--but you 
have a nest egg of, let's say, $10 million, which is a pretty good 
lifetime of work, this year you could die and pass it along to your 
children because the Democrats are asleep at the switch. They would 
like to tax your estate. They just haven't gotten around to doing that, 
partly because the gavel in the Ways and Means Committee has been in 
three different hands, all of that within 24 hours by the way.
  All of your productivity, all of your earnings from your work, all of 
your earnings from your investments and your management of whatever 
business you might start or your dividends, your capital gains, your 
interest income, your estate tax, all of that is taxed, all of that is 
productivity, all of that is punished by the Federal Government today. 
So what do we get? We get less productivity. We get less investment 
because the cost of capital goes up. And we get less savings because 
the interest income on the savings will be taxed by the IRS.
  We will have fewer dividends because companies are looking to figure 
out how they can avoid the corporate income tax in order to not pay out 
the dividends that come from the profits. And their dividends 
themselves are taxed. When the board of directors cashes in on those 
dividends, they are looking at the tax liability; so they are thinking, 
let's roll it. I don't want to take that out because the IRS will come 
in and tax.
  And by the way, investments in foreign lands, if they are repatriated 
into

[[Page 6306]]

 the United States, there will be a capital gains tax against that or 
an income tax against that as well. So there is in the order of $13 
billion in private sector capital that is stranded overseas that isn't 
coming back to the United States because there is a penalty there for 
bringing it into this economy. If we would just suspend the tax on all 
the capital overseas, we would see trillions come back into the United 
States. Five trillion perhaps in the first year, most if not all of 
that in the succeeding years.
  That's why the fair tax is the right way to go. There are many good 
reasons why the fair tax is the right way to go, Madam Speaker. But the 
biggest reason--two big reasons--one big reason is the fair tax ends 
the IRS. It ends the Internal Revenue Code. It ends the punishment to 
productivity in America. It stops the punishment of earnings, savings 
and investment, and lets a person earn all they can earn, save all they 
want to save, invest all they want to invest, and in fact take the 
proceeds from the investments out and move them around, put them in an 
investment where they will return better rather than having to pay tax 
when you cash that check in.
  So now we have all of these people that are involved in tax 
avoidance, all the tax attorneys that are involved, H & R Block 
involved in tax avoidance because the taxes may be avoided, they are 
delayed; but in effect they are often not circumvented. They must be 
paid eventually. Most of them. That's what this Tax Code is set up to 
do.
  My position is this: I am for H.R. 25. I am for the national sales 
tax. I am for the fair tax. And what it does, it takes all tax off of 
productivity, it abolishes the IRS, it puts the tax over on 
consumption, where it provides an incentive for savings and investment. 
When you tax consumption, that encourages people to invest and save. 
And they can build their nest egg. And the capital comes back to the 
United States. That big chunk of that $13 trillion comes back to the 
United States.
  And all of these high-rise buildings that have highly paid tax 
lawyers in it and the corporations that have whole floors of their 
buildings dedicated to tax attorneys, tax advisers, accountants for the 
purpose of avoiding taxes, all that goes away. And that human capital, 
the very smart people, moral, hardworking, ethical people who have 
legitimate jobs in today's environment, they could turn their focus 
into producing something that has value rather than tax delay or tax 
avoidance.

                              {time}  2210

  Think what it would be like to take all of those smart brains and 
turn them loose to help us figure out how to be more productive. Some 
of them will go out and start a business. Those businesses will go up, 
and they will be publicly traded businesses eventually. Some of them 
will go to work for other companies, and they will add to the value of 
those companies because of their creative ideas. Some of them will be 
such good nuts-and-bolts accountants that they'll find other ways for 
companies to make money, and it might well be their companies. Some are 
entrepreneurs, but the creativity of America is diminished because 
we're locking up a bunch of human capital to audit and punish the 
productivity of the American people.
  What sense does that make, Madam Speaker? Why do we have a sense of 
class envy against people who would be productive and who would make 
money?
  Now, I'm not among them. I'm not going to die a rich man, Madam 
Speaker. There is nobody in my lineage who's going to pass it along to 
me. I've dedicated my life to this public service and have made a 
little money in my time, not enough to talk about and certainly not 
enough to brag about, but I've engaged in this free enterprise economy.
  I started a business in 1975 when I had a negative net worth of 
$5,000. I went out and bought an old, beaten-up bulldozer, an old D-
717A. That machine was so decrepit that I couldn't even put it to work 
to make my first dollar until I took the welder out and welded on it 
for 2 weeks before I could get it stuck together enough that I could 
put it to work. I put it to work. After 3 hours, I watched the old 
pressure gauge go from the peg of high pressure all the way down to 
zero--just about like that. As that happened, I dropped the throttle 
down and shut the machine off. I had to tear the engine all the way 
down and had to put it all the way back together in the rain. My wife 
was standing there, 4\1/2\-months pregnant with our first child, and I 
was torquing head bolts on a D-7, in the rain, in September. That's how 
we got started.
  I have an appreciation for what it takes to start a business, to make 
that business go, to grow that business to where we can hire people and 
can pay wages and benefits. I certainly have an appreciation, Madam 
Speaker, for walking into my construction office sometime in the early 
1990s when I first noticed this. My secretary had taken our Christmas 
tree and had decorated that Christmas tree with gold silhouettes of 
Christmas trees, of Santa and a sleigh, of baby Jesus, of the Star of 
Bethlehem, of snowflakes. Each one of those on that tree was engraved 
with the name of either an employee, a spouse or one of their children, 
and there were enough who were dependent upon King Construction to 
decorate that entire Christmas tree. That was the time it really hit me 
that the decisions that I made affected the lives of all of those 
families and their children. It was something that weighed on me 
heavily but that also gave me great joy during that time--to see that 
we had built something that so many people were dependent upon, 
something that was good and just and honest and decent and productive. 
Of course, the tax burden on that was one of the anchors that we had to 
drag all the way through.
  So I had come to a conclusion that I wanted to eliminate the IRS, 
that I wanted to end this punishment for productivity, that I wanted to 
put the tax on consumption, to let people earn all they could earn, to 
save all they could save, to invest all they wanted to invest, to 
accept the proceeds of their investments, and to move them around 
without penalty. Sell anything you want to sell. Take your capital 
gains. Put it in the bank, and do what you want to do. Yet, when you 
spend the money, pay the tax.
  I understand, and I would think that anybody at this level of 
government should understand that businesses don't pay taxes. 
Corporations, sole proprietorships, LLCs don't pay taxes. They collect 
taxes for government. They pass the costs of taxes through to the 
consumer, but they don't pay taxes. If they didn't pass those costs 
along, they would be broke, and we all know that. Businesses are 
effective and efficient collectors of taxes for government, but they 
are not taxpayers. So we can get to two principles here:
  One I've spoken about in some depth, which is that taxing 
productivity reduces our productivity. Increasing our productivity is a 
solution for our economy, so we should take all of the tax off of 
productivity, and we should put it on consumption.
  The next principle is that businesses don't pay taxes. They collect 
taxes from consumers. So why wouldn't we just allow the 44 or 45 States 
which currently have a sales tax to use the engine that they have, the 
system that they have, to collect the sales tax in the same fashion 
that they're collecting it at the retail outlets within their States 
now? No exemptions. We'd have to tax sales and service. Yes, government 
would have to pay that tax. They're paying it today in the embedded 
costs of the things that they buy. The government has to pay tax. There 
has got to be a tax on sales and service, and it would only be the last 
stop on the retail dollar.
  So, if it's a farmer, for example, rest easy because, if you go out 
and buy a new combine or a planter or a tractor or a rotary hoe, or 
whatever it is that it might be that you need, you wouldn't have to pay 
sales tax on that equipment because that's a business input cost. So 
you can buy equipment. You can put it into your fleet. You can work it, 
but you don't have to pay sales tax on that equipment because it's a 
business input cost; but if you buy, for example, a cap to put on your 
head while you ride around in that

[[Page 6307]]

combine or while you pull that planter on that new tractor, you'd pay 
sales tax on the cap because that's a personal item. That's how the 
differentiation comes down. We would have to tax all goods and 
services.
  So, if people are sitting there thinking, well, my pharmaceuticals 
will be exempted, no, sorry, we can't exempt them either. 
Pharmaceuticals wouldn't be exempted. Neither would Pablum or Pampers 
or any of these products that we would call ``food'' or preferred items 
for those organizations or entities that we think we'd like to untax, 
because, as soon as we start creating exemptions, then there's another 
exemption that has equal or more merit. Pretty soon, it would narrow 
the tax base to the point where the rate would be too high and we 
couldn't sustain this. It has to be no exemptions. All tax on sales and 
services must be paid.
  If you were to go out and build a new house, you would pay a sales 
tax on the materials--on the lumber, on the plumbing, which are all of 
the things that go into a new house, and on the labor. Though, if you 
would sell that new house the next week, there would be no sales tax on 
it because it would be a used house, and the tax would have already 
been paid on the materials and on the labor. Now, that might seem like 
a high cost for a new house except that the cost of those materials 
that would go into the house would be, on average, 22 percent cheaper. 
That's because there is an embedded Federal tax in everything that we 
buy, which averages at 22 percent. Remember, these businesses don't pay 
taxes. They pass them along to the consumers. Here is how it works, 
Madam Speaker:
  Their businesses will factor it into their prices, and they must. 
That $1 widget has an average of 22-cents' worth of embedded Federal 
taxes in the price. So, if you would pass this national sales tax, the 
Fair Tax, you would see competition drive the price down. Your $1 
widget would be priced then at 78 cents. Twenty-two percent of the 
embedded cost of that $1 widget would go down to 78 cents. Yes, you'd 
have to add back in a 23 percent embedded national sales tax in that on 
the sales and on the service. Yes, that would take that up to just a 
skosh over $1 again. Yet people would get 56 percent more in their 
paychecks. They would have a lot more money to spend. The retail prices 
wouldn't look a lot different when you'd be done paying the tax than 
they would today, but the difference is that everybody would see how 
expensive the Federal tax is, and they would make less demands on 
government because it would make everyone a taxpayer.
  Let me tell you the story of little Michael Dix, who is the son of an 
outstanding once and future State legislator in Iowa. Little Michael 
was about 8 years old when this happened. We have a 7 percent sales tax 
in the State, in many of the regions, and I trust it was in this one. 
He'd saved up his money, and he wanted to go in and buy a little box of 
Skittles--those little sweets that are there on the counter. They were 
89 cents, and he'd saved his money and had counted it out. He went in 
and got his Skittles out and laid them up on the counter at the 
convenience store. He counted out his money, the 89 cents, all the way 
up to the right penny.
  The lady who ran the checkout register rang it up, and said, Okay. 
That'll be 96 cents.
  He looked at her, and he said, But they're 89 cents. That's what it 
says on the box.
  She said, Well, no. You've got to pay the Governor. You've got to pay 
the tax.
  So there he is with the 89 cents, having saved it to buy his 
Skittles. It's a transaction that's pretty important to Michael Dix, as 
it should be to any young child that age. He found out that he had to 
pay the tax and that she wanted 96 cents.
  He turned to his dad, and he said, Dad, I have to pay tax on 
Skittles?
  Imagine, Madam Speaker. Imagine what that does. I don't think Michael 
Dix is going to be a guy who's going to grow up demanding that the 
Federal Government produce more things for him. I don't think he's 
going to be one who's going to tolerate higher taxes. I think this 
young man is going to grow up to personal responsibility, very well 
aware of how burdensome the Federal and the State governments are. 
He'll make sure that when government provides a service that it's a 
good value for that and that it's a necessary service, not one that's 
frivolous--or, man, he's going to know always that the money came out 
of the pocket of Michael Dix and that it didn't come out, necessarily, 
of the pocket of some anonymous person.
  It's personal. The national sales tax, the Fair Tax, makes this 
personal, Madam Speaker. It makes it personal for millions and millions 
of kids who are growing up in America and who are making billions of 
transactions. Every time, they're being reminded that the Federal 
Government is expensive. An expensive Federal Government that makes 
everybody a taxpayer becomes a Federal Government that those taxpayers 
demand less of. More freedom. Less taxes. That's the equation.
  The national sales tax, the Fair Tax, H.R. 25, is transformative. 
It's transformative from an economic standpoint because it takes all of 
the taxes off of productivity, and it puts all of the taxes on 
consumption. It provides an incentive for earnings, savings, and 
investments. It abolishes the punishment for production, which is a tax 
on corporate, personal, and business income tax and taxes on capital 
gains, investments, interest income, and all of the components--the 
State tax included. It does all of those things. The Fair Tax does 
everything good that anybody's tax reform does. It does them all. It 
does them all better, and the American people are getting closer to 
understanding what this means.
  The American people can visualize what happens--a world without the 
IRS, a world without punishment for production, a world that has little 
kids growing up like Michael Dix, who is now a young man who 
understands that paying taxes is a personal experience. It's 
transformative, Madam Speaker, for this country to move down the path 
of a national sales tax and toward abolishing the IRS.
  Some will say they support a national sales tax, H.R. 25, the Fair 
Tax, provided that we first repeal the 16th Amendment, but that sets up 
an impossible bar. Can we imagine any piece of legislation that we 
would predicate upon the passage of a constitutional amendment? What if 
we had the flat tax and we had to pass a constitutional amendment 
before we could adopt the flat tax? What if we had to pass a 
constitutional amendment before we raised the debt ceiling? What if we 
had fixated in the Constitution of the United States a debt ceiling 
that we couldn't surpass? I think that would be a good thing, actually. 
I'd like to ratchet it down from where it is now. We couldn't pass that 
constitutional amendment. The bar is too high. The bar is too high to 
set the standard that passing the repeal of the 16th Amendment is a 
condition to adopt a national sales tax. Here is the reality of it:
  H.R. 25, the Fair Tax, does this. It starts the process for the 
repeal of the 16th Amendment and abolishes the IRS. It abolishes the 
Income Tax Code in its entirety.
  Can we imagine the American people freed of the burden of the IRS--
freed from the fear of audit? The American people get 56 percent more 
on their paychecks. They make their own decisions on when to pay their 
taxes, and the IRS becomes a thing of history, and the Internal Revenue 
Code--the punishment, the tax on all productivity--is gone.
  Do we think for a minute, Madam Speaker, that this Congress of the 
American people would tolerate the reestablishment of the IRS or the 
reestablishment of the Income Tax Code? No, they would not. In fact, 
they would be so glad to get 56 percent more on their paychecks and 
would be so glad to have the freedom to make the decisions on when to 
pay their taxes rather than having the IRS tell them, You shall pay it 
out of every dollar that you make, that they would never tolerate the 
reestablishment of the IRS nor the reestablishment of the Tax Code. 
It's that simple. They would, I believe, chase the 16th Amendment

[[Page 6308]]

down with a great joy that they would be relieved of it, and they would 
eventually abolish it and repeal it.
  Yet, to set the condition as a bar to pass the Fair Tax, it is too 
high a bar. It's not an impossibility, but it's an extreme difficulty, 
and it becomes a semantics argument rather than a practical one. So, 
Madam Speaker, I'll make this point:
  In 30 years of making this argument, I have never run into an 
argument for some other tax reform that is economically superior to the 
national sales tax, to the Fair Tax. I have not run into that argument. 
I have not been in a debate where I thought that the other side made a 
point that I had trouble addressing economically. The only point that 
they can make is that, in their judgment, it's too difficult to pass 
politically.
  Well, when you tell the American people that the IRS is going to be 
gone and that we're going to put those smart, good people at the IRS to 
work in the productive sector of the economy instead of in the 
burdensome sector of the economy, they're going to cheer. They're going 
to stand up, and they're going to applaud. They've done that for me 
over and over again.
  The time is right. The economy is in a sad condition. We don't have a 
President who understands this free market economy. I don't think he 
believes in it. He has been nationalizing it right and left. He has 
been nationalizing the three large investment banks; AIG, the insurance 
company; Fannie Mae and Freddie Mac; General Motors; and Chrysler. The 
Student Loan Program has been completely taken over by the Federal 
Government. ObamaCare has swallowed up the most sovereign thing that we 
have, our bodies. Our skin and everything inside it has now been taken 
over and is managed by the Federal Government.
  This President and this majority in Congress don't begin to 
understand the sovereignty of the individual or the free market system 
that we have, but the American people understand, Madam Speaker. The 
American people are going to be given a choice this November. They are 
going to choose freedom. They are going to choose liberty. They are 
going to choose constitutional conservatism. I look forward to the 
transformation, to the freedom, and to the liberty that comes from the 
people who step up to their own personal responsibility.
  I thank you so much for your indulgence and for your attention here 
this evening, and I yield back the balance of my time.

                          ____________________